Pages

Wednesday, July 30, 2008

That's Why I Have Been Making So Many Trips to the Grocery Store

Rich Karlgaard clues us in to the secrets of survival for firms producing consumer goods in a stagflationary environment:

At a campground breakfast last month I grabbed a little box of Raisin Bran cereal. I opened the box and popped the waxed paper, which let out a mighty whoosh of air I felt in the eyeballs. I tore the wax paper and discovered the source of the whoosh: The box was mostly filled with air. I imagined some bran flakes hiding in the bottom. To test this theory, I poured the contents into a bowl. Indeed, there was some Raisin Bran in there--about 20 flakes. I fetched two more boxes and emptied the flakes and raisins into the bowl. It took three boxes to make a halfway decent bowl of cereal.

[...]

Robbery at the cereal box indicates that stagflation is America's real problem now. Cereal vendors are afraid to raise prices. They know that American wages have risen little of late, and the small gains have been eroded by gas prices. So cereal vendors play a game with consumers: charge more by giving less.

One can't be angry at the cereal vendors, by the way. Their costs for goods and distribution have skyrocketed. They have no choice but to raise prices or serve up fewer flakes. Or go out of business...

Steve Forbes has pointed out that while the pastries he buys each morning at Starbucks cost the same, they've shrunk in size. Containers of Shedd's Spread Country Crock used to consist of 48 ounces of margarine, but buyers now pay the same price to get 45 ounces. Frequent RealClearMarkets contributor Doug Johnson notes that the cost of a package of diapers for his children hasn't gone up, but today there are four less diapers in each package.

2 comments:

Having lived through the Great British inflation of the 1970s(CPI rose about 30% in 1975) this brings back memories! Due to govt price controls, food producers cut back portions (and quality) dramatically. Does this mean CPI inflation today is understated? Probably, so TIPS holders and SS recipients are already losing the income distribution war.